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HINASOURCERtheby the China Sourcing Information CenterC
September 2011№ 13
One-year Anniversary: the "Best Of" issue
24
Top 4 articles most likely to
Save the Reader Time and Money
10
What to do when you receive
Bad Quality Products?
2913
TradeshowsBeginning, Middle and End
3rd Party Support in China
NewSponsor Showcase: Chibridge
Contact CSIC if you are in need of legal support and we will be happy to introduce you to Chibridge in order to ensure our readers get preferential service and pricing.
2the China Sourcer September 2011
7 Open Buyers’ Eyes to Realities of China SourcingStop Fraud Before it Starts 8
10 Save the Reader Time and MoneyFactory Audits 11Tradeshows: Beginning, Middle and End 13
17 “Green and Practical” Award WinnerSeven ways even small buyers can reduce waste in their supply chain 17
20 Top News EventReports of China's death as a sourcing destination are highly exaggerated 20
23 “Most Interesting and Relevant”Is it too late to do anything if I receive bad quality products? 24
27 Top CSIC VideoWhat New Buyers Need to Know 27
28 “Ask the Experts”3rd Party Support in China 29
30 Sponsor of the MonthFiducia 30
31 The Last Page
Table of Contents
3the China Sourcer September 2011
Author Bios
Kevyn KennedyCBI Consulting
Mr. Kennedy, General Manager of CBI Con-sulting, (www.cbiconsulting.com.cn) has over fifteen years experience conducting and man-aging commercial inquiries throughout Great-er China. A U.S. Navy veteran with journalistic experience, Mr. Kennedy speaks fluent Man-darin Chinese. Mr. Kennedy may be reached at [email protected].
Mike BellamyCSIC, PassageMaker
Mike serves as the Chair of the CSIC adviso-ry panel and is the founder of PassageMaker Sourcing Solutions. Mike, in Asia since 1994, is recognized as expert on China sourcing. Mike has been a featured presenter for a num-ber of high profile seminars and trade shows including Global Sources Asia Expo HK, Global Sources Dubai, & the US Chamber of Commerce. He lives in Shenzhen with his wife and daughter.
Lindsey LukerCSIC
Lindsey currently resides in Shenzhen and is part of the editorial staff for the China Sourcer magazine. Originally from Florida, Lindsey is majoring in History at Brigham Young Univer-sity Utah.
Renaud AnjoranAsia Quality Focus
Renaud Anjoran lives in Shenzhen, China and writes advice about quality control in China for importers. His blog and regular writings about quality control can be found at www.qualityinspection.org.
Want to become a writer for CSIC? Send us an email. We want to hear from you.
4the China Sourcer September 2011
Tradeshow Calendar
&Teaming up to offer free conferences on China sourcing topics in Hong Kong, Shanghai, Dubai, Mumbai, Johannesburg, Miami, and Singapore in 2011.
Next stops on the global seminar series:
12-15 Oct Hong Kong (Electronics and Components). Hall 2, booth # 2D0720-23 Oct Hong Kong (Home Products). Hall 5 & 7, booth # 5A3627-30 Oct Hong Kong (Fashion Accessories). Hall 5 & 7, booth # 7L4413-25 Nov Mumbai TBD30 Nov-02 Dec Johannesburg. Booth # 3G01
Contact [email protected] to book seats for an individual or group.
5the China Sourcer September 2011
October 2011Sun Mon Tue Wed Thu Fri Sat
1
2 3 4 5 6 7 8
9 10 11 12-15Hong Kong (Electronics & Components)Hall 2, booth # 2D07
16 17 18 19 20-23Hong Kong (Home Products)Hall 5 & 7, booth # 5A36
23 24 25 26 27-30Hong Kong (Fashion Accessories)Hall 5 & 7, booth # 7L44
30 31
Buying from China: What new buyers need to know
This one-hour introductory level course on sourcing includes modules such as:
• Managing expectations: Sourcing opportunities and common pitfalls• Quality Control Fundamentals • Shipping & Logistics Overview• Supplier Payments
Whether you’re a beginner or veteran buyer who wants a fresh perspective on the subject, these seminars will give you valuable tips on sourcing more productively and profitably. Gain information that will continue to pay off for years to come.
Negotiation tactics for successful purchase contracts/orders This one-hour intermediate-level course will discuss common pitfalls and strategies in supplier evaluation and purchase order agreements. 1. Conducting RFQ (Request for Quotation) 2. Face-to-Face Negotiations 3. Critical Contractual Items • Price • Quality • Lead Times • Payment terms • Intellectual Property Valuable “tools of the trade” such as check lists and templates used by industry experts will be provided.
About the key note speakers: Mike Bellamy and David Dayton
David Dayton
David has nearly twenty years experi-ence working in and with Asia and is a regular presenter for Global Sources’ New Buyer Training seminars in Shanghai and in Hong Kong. David, fluent in both Thai and Mandarin also heads the Silk Road International Blog- voted one of the top 10 China business blogs.
Mike Bellamny
Mike, in Asia since 1994, is recognized as expert on China sourcing. Mike has been a featured presenter for a number of high profile seminars and trade shows including Global Sources Asia Expo HK, Global Sources Dubai, & the US Chamber of Commerce. He lives in Shenzhen with his wife and daughter.
6the China Sourcer September 2011
Top 7 articles most likely to
Open Buyers’ Eyes to Realities of China Sourcing
The featured article below has been chosen as the "reader's choice" for best article on the realities of China sourcing.
winner Stop Fraud Before it StartsIssue 12, August 2011
The articles below are chosen as "honorable mentions," and are available for download. Click on an article to download the issue to which it belongs.
� Managing the Supply ChainIssue 3, November 2010
� Product RecallsIssue 4, December 2010
� Kelly’s 1st & 2nd Laws of China SourcingIssue 5, January 2011
� Who buys materials when production is outsourcedIssue 6, February 2011
� How your reps can get bribes from your suppliersIssue 12, August 2011
� Tips to Avoid Supply Chain CorruptionIssue 12, August 2011
7the China Sourcer September 2011
Kevyn Kennedy | CBI Consulting
Stop Fraud Before it StartsFraud. Corruption. Leeches and parasites on your supply chain, the scourge of your quality control. Degenerates plaguing your profitability. Vampires sucking at your bot-tom line. Tapeworms affixed to the stomach of your guts and working their way slowly & methodically into your lower intestines...you get the picture.
If you’re reading this, you’re either sourcing from China or considering sourcing from China. Perhaps you have had the unpleas-ant experience of finding your sub-con-tracted manufacturer stealing your Intellec-tual Property, or perhaps your distributors claimed wastage was unreasonably high while selling your merchandise themselves.
The remedies for fraud and corruption vary. Good, strong companies have sometimes simply given up when they find a trusted supplier ripping them off. Others try to take punitive measures. The smartest stay vigilant-always.
Fraud can occur at any place on the supply chain, and can be perpetrated by anyone on
the supply chain. Sure, the factory manager who substituted low-grade wood for the speaker cabinets after you insisted on top of the line quality is committing fraud. But give these guys credit—they are pretty darn smart!
Check these out:
• An electronics factory which was report-ing abnormally high waste was found to be selling production itself. This happens fairly regularly, but what made this one interesting is that they were actually throwing the parts away! The perfectly good merchandise was retrieved from the dumpster in the middle of the night, so few people in the factory were aware that the “trash” was just fine.
• A factory owner charged with making heavy pumps for use pulling oil out of the ground was found making exactly the same pump—using the client’s drawings and blue-prints—in his own factory. This is especially tough for investigators to work on. How do you tell the real pumps from the counter-feit? You can’t. To the naked eye, they are
8the China Sourcer September 2011
“Stop Fraud Before it Starts” (...)
see something that is atypical, a plane trip to confront them is not out of the question.
• Use your economic muscle. Very often our clients wish to either beat their way-ward suppliers to a pulp (dumb!) OR send them to jail (won’t happen). What should they be doing? Using their contract to en-force their rights. Every agreement with a Chinese company should include a clause to the effect that if the China partner is found cheating, the contract will be cancelled on the spot. If the supplier is in business be-cause of you, shouldn’t you make them ad-here to your standards?
In every case, remember that it is your repu-tation that is carried on your products. It is you who is at risk. Zero tolerance for fraud should be your norm.
identical.
• A delivery company charged with taking products from the warehouse to the retailer was observed stopping on the side of the road, unloading genuine merchandise, and replacing it with counterfeit products.
• A sourcing manager for a huge software company was found to be set up with a prostitute when in China. What a man does with his free time is no concern of mine—but not when the prostitute was being ar-ranged by the supplier as a condition to re-newed contracts!
Accountants misreporting earnings? Sure. Skimming profits off the top? Sure. Sales-men taking kickbacks? It happens. And it happens at the worst possible time for you. These illicit profits are riding on the back of your hard work, your good reputation. When kids get sick because your toys were painted with lead paint instead of the enam-el you insisted on, the public backlash does not hit the factory in China. It hits you!
None of us can change human nature. Nor do I want to imply that we can eradicate all cases of fraud and corruption. What I can do is offer advice.
• Don’t be naïve. The temptations of mak-ing an easy buck are often too much for sup-pliers to handle. Meeting with suppliers the first time often makes you feel at ease; tak-ing them to dinner is like being entertained by long lost friends eager to make you feel at home. We encourage you to be friends with your subs—while maintaining your vigilance.
• Don’t neglect your part. Inspect your finished products when they arrive in the States or in Europe. Maintain constant con-tact with your China partners. When you
The China Sourcing Information Center is a buyers’ support network. As such, the CSIC is seeking new writers for our publication.
Help support our growing network of buyers helping buyers by sharing your experiences (successful or not) with our readership.
To learn more about writing for the China Sourcing Information Center and its online magazine the “China Sourcer” please e-mail
9the China Sourcer September 2011
Top 4 articles most likely to
Save the Reader Time and Money
The featured articles below have been chosen as the "reader's choice" for best articles on how to save you time and money.
winner Factory AuditsIssue 2, October 2010
winner TradeshowsIssue 2, October 2010
The articles below are chosen as "honorable mentions," and are available for download. Click on an article to download the issue to which it belongs.
� Securing Profits When Sourcing From ChinaIssue 3, November 2010
� Engineering in China: Helping you save time and money before production startsIssue 4, December 2010
10the China Sourcer September 2011
Mike Bellamy | CSIC, PassageMaker
Factory AuditsNotes on Conducting a Factory Audit During the Supplier Identification Phase
It is essential to do a factory audit to review the QC systems of your top potential sup-pliers in advance of placing a Purchase Or-der (PO). Depending on your budget con-straints, you may choose to audit all the top candidates or perhaps just one or two. But it is essential to have some kind of on-site audit done. As the costs are generally hun-dreds of USD per audit when hiring a 3rd party auditor, rather than thousands, I tend to audit the top four or five suppliers to give myself the best odds of finding that perfect match.
To give the reader a feel for what a typical factory audit consists of, I would like to pro-vide two examples. One is the resulting re-port of a “simple factory audit” conducted by the professionals at China Quality Fo-cus (www. ChinaQualityFocus.com). The second is a template for a “comprehensive audit” used by a US buyer of high-end elec-tronics. It is full of very technical QC con-cepts and in a bi-lingual. Keep it handy if you find yourself in a factory that doesn’t have polished English skills, you just may be able to use your fingers to point out the key
11the China Sourcer September 2011
“Factory Audits” (...)
buyer will see the clear value and probably opt for the auditors to do the rest of the au-dits
• Make your own template based on the samples below and conduct your own audit as a last resort if you are flat broke and can’t hire a professional for a few hundred USD (I’ve been in sourcing for 10+ years and I still leave this function to the auditing pro-fessionals, so don’t feel embarrassed about getting help! It may be turn out to be the best money you spend in China.)
Please click to view the Sample Audit and the Sample Supplier Evaluation Form.
QC terms if you can’t communicate them well in spoken or written English alone.
In advance of reviewing the two documents, understand that the intensity of your audit depends a lot on the industry you are in. For example, electronics, medical and auto-motive standards are much more rigorous than plastic picture frames. And it wouldn’t be effective to hold a plastic picture frame factory to the electronics sample below. The simple factory audit will give useful insight into any factory and catch any major red flags, while an industry specific extensive audit would be used to select the best sup-plier from a group of suppliers that have all passed the simple audit.
Please keep in mind that the templates be-low are used by engineers, trained in au-diting. But it is my hope that simply read-ing over how the experts do it, readers can pick up some themes that they could apply to their own projects. For reference, know that the going rate at the time of writing for China Quality Focus to conduct the simple factory audit below is just 188 euro per man day and the vast majority of audits are con-ducted in 1 or 2 days, depending on the size of the factory in question. So unless you are familiar with QC standards and how Chi-nese factories are set up, it is probably best to leave quality systems auditing to the ex-perts. But, if you are on a tight budget and don’t have the funds to hire the experts, here are some tips to keep auditing costs down:
• Audit only the top 1 or 2 factories.
• Join the auditor for the initial factory au-dit, study their methods, learn the template, and do the next factory audit yourself. I don’t advise this option, but it is an option when on a tight budget. Most auditors will be happy to have you tag along, because if they are professional and do a great job, the
find us on
linkedin.com/groups/China-Sourcing-Information-Center-3979942
12the China Sourcer September 2011
Lindsey Luker | CSIC
Tradeshows: Beginning, Middle and EndWhen you think about going to tradeshows in China, all of the little details about things to keep in mind can be overwhelming at times. Do I go to tradeshow A or tradeshow B? Do I pick supplier P or supplier Q? Wait, what do I need to bring to a tradeshow in the first place? All in all, when you have a lot on your mind things can get complicated quite quickly. To help you out, here is a brief breakdown of some of the most important details that you will want to check off your to-do list before booking a flight to China.
Getting Started
The good news about going to tradeshows in China is that there are a plethora of choic-es to choose from. Unfortunately, that is also the bad news: there are so many trade-shows to choose from that you may wonder which ones you should take the time to at-tend. One thing to take note of is that all of the tradeshow promoters have information about typical attendees and especially about exhibitors. However, some of the websites tend to stretch out the truth when detailing the realities of the show. For example, on the internet the words chosen by the promotion team may imply that the show is a national level show with major vendors participating
from all across China. The reality might ac-tually be that it is dominated by local ven-dors with only a few additions from other outlying regions. Similar situations occur with product categories. For example, the show may be promoted as an international home furnishings show but when you arrive you find it is dominated by air condition-ers. This may be perfectly fine if you are in the market for cold air, but is probably not the ideal situation if you are looking for din-ing room sets. It is important to take a close look at the exhibitor list to get a feel if the types of suppliers you are looking for will be there before you buy your plane ticket. Keep in mind that more and more tradeshows these days are focused on selling to China rather than exporting from China. So read carefully about a show. You can find list of tradeshows at www.GlobalSources.com. Global Sources also organizes China Sourc-ing fairs throughout the year and the sup-pliers at these shows are very much geared towards export.
Preparation
Once you’ve chosen a tradeshow to attend, there are a few things to take care of prior to your arrival. First, it is will save you a
13the China Sourcer September 2011
“Tradeshows: Beginning, Middle and End” (...)
talking to somebody that has an interest but no experience.
Step Two: Quick Questions
Here is the short list:
• Can you communicate well?
• Do they have Product and Export His-tory?
• Available References/ Recommendations?
• How is their Capacity, Average Order Quantities & Production Times?
• Can they outline the QC process for you?
• How much is outsourced and how much stays in-house at this factory?
• Can you visit the factory and conduct 3rd Party Quality control inspections and audits? (if they so “no”, runaway and find another supplier). If they are afraid to let you see the fac-tory and its QC system, they probably have something to hide.
• How is the pricing? If the answers are positive, consider further discussions at the factory floor after the show for the top 3 or 4 suppliers.
Business Cards
It is highly probable that you have heard somewhere along the line that if you give out business cards at the show, there will be an endless stream of spam when the show is over. Unfortunately, that rumor is true. If you hand out your email address to suppli-ers at the show, show, you will be spammed non-stop for years to come. Some buyers try to get around the spam by
A. Actually printing up dummy cards with
considerable amount of time if you register online in advance, that way you are able to bypass the long registration lines at the en-trance. Second, arrange for a driver to pick you up after the show. Traffic is generally a mess when the show ends and the day is over. Don’t get stuck waiting outside in the rain for 2 hours fighting for a cab. Third, wear comfortable shoes and consider bring-ing a carry case with wheels to pull behind you. You will be walking a lot and in the process of doing so will probably collect an enormous amount of paperwork in the form of brochures, catalogues and show guides. Your body will thank you later if you come prepared. Fourth, bring a digital camera and a notebook. Before you leave a booth, you will want to jot down key notes and docu-ment things visually so that after the show all of the information is not blurred togeth-er. Lastly, it’s a good idea to spend a few days after the show to visit existing factories which you are already doing business with or to check out new ones. You are already in China, so why not make the most of your trip?
During the Tradeshow
They say one needs to crush a lot of rocks to find a diamond. If you ever visit a tradeshow in China, especially the major fairs in HK and Guangzhou, you may feel overwhelmed by the sheer number of suppliers. As you scan the booths you may find yourself won-dering how you could possibly pick the win-ning supplier with so many to choose from. Here are some suggestions:
Step One: The Quick Walk
Ignore the booths that don’t show your desired product or required production method. It is much more effective to have a meaningful talk with somebody that has experience on your product as opposed to
14the China Sourcer September 2011
“Tradeshows: Beginning, Middle and End” (...)
or other commission from the supplier. Con-sequently, you must perform due diligence on your research partners as well as your suppliers.
Secondly, unlike the medical and legal pro-fessions, there is no agreed code of ethics, standards or governing body for sourc-ing agents in China or USA for that mat-ter. When considering a research partner in China, make sure you ask about ownership, compensation structure, client references, non-compete clauses, research methodology, full disclosure of sub-supplier pricing and identity, company history, warranty terms, and the plan for protecting your intellec-tual property. When you pay for research in China, make sure you have a contract in place. If your “partner” is doing research for warranty terms, and the plan for protecting your intellectual property. When you pay for research in China, make sure you have a contract in place. If your “partner” is doing research for free without a formal contract in place, then they are not obligated to do a professional job. Also, nothing is done for free in China. If somebody is handling sup-plier identification “for free”, it probably means they are making a hidden mark up somewhere else.
To get a list of reputable companies involved in supplier identification and analysis, check out the Endorsed Service Providers page at www.ChinaSourcingInfo.org.
Hopefully this little bit of advice has helping to organize the swirling mass of details run-ning around inside your head. Just be sure to complete your checklist and throw on some galoshes before heading into the muck.
fake emails and imaginary brands to avoid the spam after the show.
B. Pretending that they are out of cards at the show and collect rather than hand out cards.
While spam is never fun to deal with, options A and B are not ideal because most buyers want the seller to stay in contact and pre-tending that you are out of cards does not always work because suppliers will simply ask you to write down your email for them. Sure you can make up an email, but if you are like me, I feel bad lying. Plus it is a very bad first impression if you don’t have a card to hand out. So my solution is to use my actual business card from my real company, but set up a trade show specific email just for that show. For example, [email protected]. I like this op-tion because it allows me to get updates and feedback from the supplier without spam-ming my main business email. Plus having different email addresses for different shows helps me keep track of when I met them the first time.
After the Final Curtain
When the booths are all packed up and you are on your way back home, it may still be difficult for you to decide which supplier is the best one for you. While hiring a research partner to help you decide may be a viable option, there are some things that you need to keep in mind.
First of all, even if you pay a company in China to conduct this supplier research you can’t automatically assume they are looking out for your best interests. It is common in China for trading companies to milk both ends. In other words, they may charge you, the buyer, for a research fee or commission while at the same time getting a kick back
15the China Sourcer September 2011
“Green and Practical” Award Winner
Renaud Anjoran | Asia Quality Focus
Seven ways even small buyers can reduce waste in their supply chainLarge buyers like GE or Wal-Mart have enough weight to push their manufacturers to reduce their carbon footprint. But 99% of importers sourcing in China cannot twist their suppliers’ arms into changing their production processes. How can they run more environmentally friendly businesses?
1. Keep some padding in your schedule
In China, 98% of manufacturers ship later than they originally promised, and do so on a regular basis. They tend to be over-opti-mistic before they secure orders (and depos-its). And they tend to be poorly organized, making precise forecasts impossible. An
easy fix is to build a safety padding of at least two weeks into your schedule. If you deal with a new supplier or if they make a new product, give yourself an extra month. This way, you will probably be able to avoid shipments by air and/or express courier de-liveries—all of which are much more pollut-ing than sea freight.
2. Select factories wisely
Producing poor quality that has to be scraped or re-worked is a huge source of waste. And late deliveries often induce more polluting transport solutions. The good news; it is possible to spot factories that will
17the China Sourcer September 2011
“Seven ways even small buyers can reduce waste in their supply chain” (...)
5. Make more durable products
You might be able to increase your products durability. You might also be able to use this benefit in your marketing messages and command higher prices. You would do the right thing for the environment by reducing overall resource consumption.
All it takes is better materials, a different de-sign, and a good dose of lifetime testing.
6. Optimize your packaging
According to Kevin Howard, a packaging consultant at Packnomics, many import-ers require too much packaging: “Damage problems often get the most attention, but the most costly problem is excessive packag-ing. Excess protection may come about as a result of excessive laboratory test standards, such as too many drops from too high of a height compared to drops actually found in the supply chain.” Inner boxes, polyfoam, thick outer cartons… Do your products re-ally need that much protection?
7. Don’t send your whole team on China trips
I strongly believe that your company should meet regularly with all your key suppliers. At least every six months seems like a good rule of thumb. On the other hand, I see im-porters who send a team of 5 people in Chi-na for a week of trade shows, and I think it makes no sense. One person can be the key contact for your major supplier(s), and local sourcing agents can do most of the on-the-ground work.
often cause such troubles. There are two questions you can ask yourself:
Is this factory reliable? An audit based on an ISO 9000 checklist will cast light on all the holes in their quality system. If they don’t control what they purchase and what they make, there will probably be mistakes to correct.
Is this factory the right size? If it is too small, it won’t be able to ship your order on time. If it is too large, you will never have the pri-ority.
3. Several smaller shipments is often a good idea
Many buyers try to import by full contain-ers, to optimize their freight expenses. But it often encourages them to order too much. They run the risk of keeping unsold inven-tory, which might have to be thrown away after a few years. It is often better to order less, and to be ready to re-order fast if there is enough market demand. It will allow you to take less of a risk with any given produc-tion.
4. Perform early inspections in addition to final QC
The vast majority of quality inspections take place just before shipment. But the whole production is already completed, so what happens if some major issues are noticed at this stage? The goods have to be reworked or even reproduced. This is a major source of waste. The most realistic option is often to check the first finished products. Another option is to send an engineer when produc-tion is being launched. If some issues are noticed at this stage, there is still time to implement corrective actions for the rest of production.
18the China Sourcer September 2011
Contract Inspection, Assembly, & Packaging servicesto protect Intellectual Property and ensure quality
Supplier Research & Vendor Coordination
Facilities include an ISO 13485-compliant medicalgrade clean room
"Tool and Die Steward" to look after client's assets to protect Intellectual Property and avoid theft & damage
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US Owned & Operated, China Based
Outsource your China sourcing office
Top News Eventof the past 12 months
Mike Bellamy | CSIC, PassageMaker
Reports of China's death as a sourcing destination are highly exaggeratedExecutive Summary:
Think of China as two entities: urban coast vs. undeveloped interior. China’s heartland is like having their own “Mexico” built in without the need to cross an international boarder, learn a different language/culture or fight off drug cartels. China’s Mexico gives it plenty of labor and room to grow.
Full Article:
Recent headlines often state something along the lines of “labor rates are on the rise and China may lose its competitive edge.” I be-lieve such a statement is not totally accurate.
To be specific, they should say “the heavily urban areas along the coast like Guangdong are becoming relatively more expensive, but with a majority of the population still rural, low cost China sourcing is far from near its end.” I’ve been living in Shenzhen (Guang-dong) running factories and front offices for 12 years and can confirm that it is getting much hard these days to find and retain staff for the production lines and also desk work. But, it is all relative. I say “much harder than before” because 5 years ago job hunters would form a line my door, now we need to go out and find them at the job markets and recruiting websites. But we still find them, just harder.
20the China Sourcer September 2011
“Reports of China's death as a sourcing destination are highly exaggeated” (...)
the coast until the infrastructure and skill sets in the interior improve.
Next 5 to 10 years
When access to infrastructure and skilled la-bor improves in the interior of China, higher end factories will also consider leaving the coast. This will help stabilize wages (and factory rents) on the coast by achieving a balance of supply and demand. Because la-bor rates and factory rents are so much low-er in the heartland, it will take a long time for rents and labor rates in the interior to catch up to the coastal rates. As a result, the country as a whole will remain competitive as a low cost, but increasingly quality con-scious supply base for many years to come.
I could be wrong, but I’m putting my mon-ey where my mouth is by planning to raise my 2nd child here in China and have made no plans to leave the PRC for the next 5-10 years. Unless I can afford early retirement of course!
Let me mention a few words about the sup-ply base in China. We source raw materials and components pan-China and have found that by getting quotes from the whole coun-try, there are still plenty of suppliers to meet our targets. So it is not like China is drying up as a source. Plus, thanks to the slightly higher wages on the coast, suppliers are fi-nally getting rid of the “throw more bodies at it” mentality of production and starting to think about efficient work place set up and efficient use of labor. For what it is worth, our companies in Shenzhen have had good luck finding and retaining staff because we run our facilities in full compliance with lo-cal labor laws and have a KPI/Bonus system that attracts good people. I have done my research first hand visiting other areas of China to check out rents/wages/tax policy and realize I could save 15-20% by moving operations to a place like Hunan, but I am not moving any time soon as I would lose 20% thanks to increased logistics and have a much harder time finding trained middle and upper management for my operation. Top level managers don’t want to leave nice places like Shanghai and Shenzhen and move to the gritty interior.
China Mike’s Crystal Ball (labor rates)
We are witnessing a massive and much needed nationwide correction orchestrated by the central government to bring balance to the current disparity between the coast and the interior in terms of resources, infra-structure and wealth.
Next 5 years
I believe you will see the suppliers who are involved in labor intensive production who compete only “price price price” move in-land leaving the coast. But the companies who are well-rounded and compete on qual-ity, service as well as price, will remain on
The China Sourcing Infor-mation Center (CSIC) is a publisher, not a producer, of content. The views and opinions of the writers are their own. The CSIC is not responsible for any views expressed by our writers.
21the China Sourcer September 2011
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Top 11 voted
“Most Interesting and Relevant”from Mike’s China Sourcing Blog
The featured article below has been chosen as the "reader's choice" for most interesting and relevant blog post (from Mike's China Sourcing blog).
winner Is it too late to do anything if I re-ceive bad quality products?August 17, 2011
The articles below are chosen as "honorable mentions," and are available on our website. Click on an article to view it in your browser.
� These middlemen think you are stupid!July 9, 2011
� Too small to go factory direct?June 20, 2010
� Heavy hitters weigh in on future of China SourcingAugust 2, 2011
� China's manufacturing slowdown. Why it's GOOD news for us buyersJuly 19, 2011
� Hate my iPad 2: a lesson about sourcingJune 24, 2011
� VAT scams exposedJune 17, 2011
23the China Sourcer September 2011
Mike Bellamy | CSIC, PassageMaker
Is it too late to do anything if I receive bad quality products?Unfortunately, unless you can check off the 5 items below, in most cases, especially if you order is small, the best advice is to “learn from your mistakes and do things right on your next order.
5 Essential Check Points
If the buyer has the following items in place, even a foreign buyer will have a decent chance of negotiating a resolution that is ac-ceptable:
1. a signed / chopped contract that clearly defines what is the acceptable level of qual-ity
2. a clear paper trailing showing proof of payment
3. the seller named on the contract matches the receiver of the payments. (With so many trading companies out there it is a common mistake to have a contract with a supplier but pay a trading company!)
24the China Sourcer September 2011
“Is it too late to do anything if I receive bad quality products?” (...)
If negotiations fail, consider getting an Eng-lish Speaking Chinese lawyer to write a de-mand letter.
KEY POINT: Unlike most nations, in China you can sue for lost revenue. Since the price you sell to your buyers is certainly much higher than the price you pay to your sup-pliers, your demand letter can “swing big” and put the fear of God into a supplier!
If the demand letter doesn’t work you can bring in 3rd party mediators or go right to court.
I have been involved directly or indirectly with 8 court cases during my 12 years in China. In all 8, the foreign party was victo-rious, BUT in all cases the buyer had the 5 critical items mentioned above in place.
This response was made possible thanks to the input of the following experts:
• Renaud Anjoran of the blog www.Quali-tyInspeciton.com and the inspection agency Asia Quality Focus
• Mike Bellamy of the (not-for-profit) China Sourcing Information Center and the sourcing agency PassageMaker
• Matt and Jamon, the professional media-tors at Southern Perspectives
4. your supplier has physical and financial assets (small “one-man-bands” disappear as soon as they feel a lawsuit is on the way)
5. the jurisdiction on the contract matches the location of the supplier’s assets at a city, province or country level.
It is always nice to have future orders you can leverage as well.
4 Critical Steps
In addition to the 5 contractual points above, here are four critical steps to help en-sure your next order is a successful one.
• Use reputable suppliers like the ones found on www.GlobalSources.com’s veri-fied supplier list.
• Because situations can change so fast in China, check out even verified suppliers in person or via a 3rd party inspection firm and/or due diligence providers BEFORE singing a purchase order.
• Have a good contract in place which de-fines not only price and lead time but ac-ceptable quality and product standards in great detail.
• Perhaps most important, do an inspection BEFORE the goods ship out from China and BEFORE final payment is made to the supplier
Now let’s assume that you have followed the tips above and somehow you still get de-fective merchandise.
The first step is to define the damage and put a value on the costs to repair or replace.
Second step is to negotiate with your sup-plier.
25the China Sourcer September 2011
》BUSINESS INTELLIGENCE
》COMPETITIVE INTELLIGENCE
》INVESTIGATIONS
》BRAND PROTECTION
Mitigating unforeseen risk in the Chinese market.
www.cbiconsulting.com.cn
Top CSIC Videoof the past 12 months
Mike Bellamy | CSIC, PassageMaker
What New Buyers Need to KnowShanghai, January 12-15, 2011
Fundamentals of China Sourcing
This 90 minute course will offer detailed in-formation about best practices and common pitfalls relating to evaluating suppliers and placing Purchase Orders (POs). Whether you’re new to China sourcing or a seasoned veteran who wants a fresh perspective on the subject, this seminar will give you valu-able advice to help you source more produc-tively and profitably.
Outline:
1. Conducting the RFQ (Request For Quote)2. Negotiation in China3. Critical Contractual Items
• Price• Quality• Lead Times• Payment Terms• Intellectual Property
� Part 1
� Part 2
27the China Sourcer September 2011
Year’s 10 best Q&A from
“Ask the Experts”
The featured article below has been chosen as the "reader's choice" for best Q&A from our "Ask the Experts" service.
winner 3rd Party Support in ChinaMarch 11, 2011
The articles below are chosen as "honorable mentions," and are available on our website. Click on an article to view it in your browser.
� Faulty products have ruined our reputation. What should we do?August 8, 2011
� Finding a manufacturer to produce and distribute worldwideJuly 27, 2011
� Payment Terms in ChinaJuly 18, 2011
� Top Quality Products at Half the PriceFebruary 23, 2011
� Labor wage reports in ChinaApril 8, 2011
� When to work with a trading company or to go China factory directFebruary 23, 2011
28the China Sourcer September 2011
Mike Bellamy | CSIC, PassageMaker
3rd Party Support in ChinaI am looking for an agency in China to help with a purchasing project. Can anyone recommend the right approach?
I spent 400 pages of an upcoming book due out in April/May entitled “China Sourcing Guide” to answer that very question. Some “Tips for Selecting a 3rd Party Service Pro-vider” are as follows:
Are they a legitimate company with proper business licensing?
Do they have a clear track record of per-formance? If they can’t give you some client references, run away. That is a very big red flag.
Are they focused on a certain set of services or do they try to everything for everybody? Yes, even the 3rd party service providers have been known to outsource to others just like some factories outsource production without telling the buyer.
Is their pricing structure and service agree-ment well defined and transparent?
It is a major pitfall to do business with a 3rd Party service provider without a clear con-tract in place that outlines the service, costs,
time frame and other desired attributes of the partnership.
I would like to add that you need to be very concerned about the “double dip.” it is not uncommon for agents in China to charge the client a commission only to also have a hidden payment from the supplier behind the scenes. The result is that the agent works for the supplier when you think they are working for you.
I’m sure your request for help finding an agent will bring you a ton of solicitations, but for your reference, know that the not-for-profit China Sourcing Information Cen-ter (where I volunteer) posts for the public a list of reputable endorsed service providers.
You may also enjoy the CSIC’s free monthly e-mag on sourcing and check out their vid-eos about finding and managing vendor/agents in China. Perhaps the best thing you can do to get up to speed on your options is to attend a conference like the ones found on Global Sources' website.
29the China Sourcer September 2011
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30the China Sourcer September 2011
The Last PageHumor in China
A special thanks to David Fisher, writer for AQF's "Qual-ity Control Blog," for providing us with this special photo.
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31the China Sourcer September 2011
